As we predicted, pensions eating up Prop. 30 education funds

In the lead up to the November 6 election last fall, CalWatchdog.com ran several articles on Proposition 30 and pensions. We warned that the $7 billion tax increase would go not to schools, as advertised by Gov. Jerry Brown and others in TV ads, but to teacher pensions and other spending. I’ll quote some below.

The news now is that this is exactly what is happening. David Crane, a Democrat who was a budget adviser to Republican Gov. Arnold Schwarzenegger, has the facts in a Bloomberg article:

“Most Californians would be surprised to learn that 100 percent of education’s share of the tax increase proposed by Governor Jerry Brown will go to pensions instead of classrooms. But that would be no surprise to longtime observers of the California State Teachers’ Retirement System, which administers teacher pensions.

“Here’s why: After retirement, teachers are unconditionally guaranteed lifetime pensions by their school districts. Everything works out fine if CalSTRS, as the retirement system is known, earns the investment returns it forecasts and from which upfront contributions are derived.

“But if they fall short, school districts must make up the difference. Because of compounding, the failure to earn forecasted earnings translates into huge deficiencies down the road.

“Unfortunately, ‘down the road’ is where school districts are now.”

He noted something Katy Grimes reported here in March on a Legislative Analyst Report, which found that the California State Teachers Retirement System needs $4.5 billion a year in new funding to keep afloat. Prop. 30 now is expected to bring in $7 billion in new revenues. Crane noted that, because of Proposition 98, about 40 percent of any new revenue must go to schools. He wrote, “[T]hat means almost $3 billion a year for the schools to use for pensions, or two-thirds of the CalSTRS $4.5 billion request. A good start to meeting pension costs, but none of the tax increase will benefit students.”

So the pensions will eat up all the $3 billion from Prop. 30 going to “schools” — plus another $1.5 billion from other general-fund dollars.

How did CalSTRS get in the mess? Crane explained:

“In short, it failed to take Warren Buffett’s advice. In 1999, Buffett said that long-term investors, such as pension funds, should assume investment returns of roughly 6 percent a year, not far from the actual return earned since then. Had CalSTRS used his figure for its projections of the fund’s growth, it would have required larger contributions from school districts, employees and the state, and CalSTRS would be healthier now.

“But the retirement fund’s board — made up of the state’s chief financial officials and others — chose to forecast much higher investment returns that, as Buffett later pointed out, implicitly predicted the stock market portion of the CalSTRS portfolio to perform 10 times better than stocks did in the 20th century.”

CalWatchdog.com predicted the Prop. 30 legerdemain

All of this was known to readers of CalWatchdog.com before the election because we reported on it.

I wrote on Sept. 12 in an article titled, “California Budget Project analysis of Prop. 30 slights slam to business, jobs”:

“Being pushed by Gov. Jerry Brown and the state’s powerful government-worker unions, Prop. 30 would increase sales and income taxes taxes by from $6 billion to $8.5 billion a year. Supposedly the money would preclude cuts in K-12 and college education. But there’s no guarantee the higher taxes wouldn’t go toward the state’s burgeoning pension costs for retired government workers. All government money is fungible.”

“Californians are stuck watching those dreadful union-financed campaign TV ads supporting Proposition 30, which would push our highest income-tax rates to the stratosphere and boost sales taxes. The main rationale for high taxes, we’re told, is that California is slashing public school funding and laying off teachers….

“What will happen if California voters approve Prop. 30? Check out the many bills that moved through the Legislature this session, as legislators crafted new proposed programs and benefit increases for their public-employee constituents.”

On Nov. 2, Wayne Lusvardi wrote in an article titled, “Prop. 30 would make budget roller coaster more scary”:

“Declaring that K-12 public school budgets would have to be cut [unless Prop. 30 passed] is the way the state socially constructs and manages a budget crisis. It is never portrayed that it is the Medi-Cal or public pension funds that are running a deficit. Public school children are used as poster children every year for any revenue shortfalls in health and welfare programs, pensions, or bond debts….

“In the above table [in the Lusvardi article], it appears that the hole in the state budget is in the Bond Fund. This would include the liability for public pensions. Retirement benefit costs have increased from $1.4 billion in 1999 to $6.5 billion this fiscal year.”

For reference, here’s one of the misleading TV ads the Prop. 30 campaign ran:

59 comments

And now good ol’ Jerry will ask for ANOTHER tax increase……for the children………and morons will vote him back in or whoever is next in line.
When will you people learn……………..

………….when they get the illegals out of here who are sucking the system dry and when the unions stop thinking that everyone retires with 99% of their pay, maybe, just maybe something will happen, otherwise its down the tubes we keep on going.

tax, tax, tax–now on sodas? For fighting obesity? Really. For paying this debt!
These pensions are a throwback and need to be treated like social security payments with the same calculations for retirement payouts.
If it was declared by JFK that the public has to pay for a part of these, then cannot a reversal be done?

@ tax target – loufca is right, the real idiots are the voters and taxpayers who perpetually re-elect those who exploit them mercilessly. Although idiot politicians do exist (Joe Biden, Barbara Boxer or George Bush for instance), as a class they are considerably smarter and more cunning than the perpetually befuddled slobs who elect them.

The great defect of Democracy is that it is based on a completely foolish and demonstrably false assumption that the common folk can be trusted to discern good, smart and honest politicians from the rest. Crazyfornia is proof beyond doubt that it just ain’t so.

“Ted is completely correct that pensions are clearly legal and binding obligations”

@ SkippingDog,
It’s only a binding obligation if you live in this state. I can’t think of a better reason to move out of state than that.

So anyway, why should we assume that government employee pensions are legally sacrosanct when our sainted legislators can’t be trusted to obey the states Constitution. How many times have they violated the requirement for a timely budget or illegally passed budgets that don’t balance using honest accounting standards?

You Prog-Bots can hide behind all the legalities you like but you don’t fool me for one second. You don’t give a damn about the law if it gets in the way of your self serving, authoritarian, dystopian agenda. The routinely illegal behavior of the politicians you elect proves my point. The law is just a weapon you use to exploit the rest of us.

The citizens of San Jose should unincorporate. In other words dissolve the city. Then form a “water district” such as many unincorporated communities have here in Texas. And, then contract out to third parties essential services. Save $$$$$$$$.

All along this was not about the children. Hell, how much have we sent to Africa for the children and it still comes down to a great man like Stephen Curry with the Golden State Warriors to have to setup a charity to provide mosquito nets to keep children from dying from malaria!

Government sucks the life out of every single society and this is no different.

There is currently a tv ad featuring “orange money”, meant to indicate that a certain amount should be designated for personal retirement investments.

George Carlin used to say that all money should be labeled. “food” “rent” “savings” “clothes” “car”, etc. That way when you come home broke the day after payday and your wife asks if you lost the rent money, you can say no, I spent the booze and gambling money.

And Ted is correct…again. Contributions to the STRS and PERS retirement funds are a legal contractual obligation. They would be required to be paid whether prop 30 passed or not. THAT money is already obligated.

The “new” money from prop 30 goes just where they said it would: to schools and other general fund uses.

Among his other naive moves, Mitt Romney got hung up on the coincidence of numbers, because 47% of Americans don’t pay federal tax and 47% wouldn’t vote for him, he inferred they were the same people. Dumb move. My sister, for one, voted Romney and she is pulling in over $4,000 a month in retirement and not paying a lick of federal tax.

Just because prop 30 will bring about $4Billion additional taxes and STRS requires $4B, does not mean the “new” tax money will go to pensions INSTEAD of schools. The “new” money will go to schools. Pensions would have been paid regardless.

Be careful. You might jump out of the frying pan into the fire. Depending on your particular tax situation, you might avoid paying for California pensions but end up paying MORE in the state you move to.

Unless you are in the highest quintile of California earners, your combined state/local tax burden, as a percent of income, is already lower than the national average.

If you retire, be careful before you move to one of the states that still taxes social security, or one of the states which charge sales tax on groceries.

And, if you DO manage to get into a lower tax state, please do not complain about the lack of services.

Oh My, this article has really got you Prog-Bot tax feeders upset! Kind of like kicking dirt on an ant hill. Why don’t all of you collectivist drones go back to “work” and do some more internet porn surfing or take one of those extra long lunch breaks and go shopping on the taxpayers dime.

“Unless you are in the highest quintile of California earners, your combined state/local tax burden, as a percent of income, is already lower than the national average.”

Baloney. Please site a credible source for that statement (not the usual tax feeder propaganda mill).

“And, if you DO manage to get into a lower tax state, please do not complain about the lack of services.”

It’s easy to find lower tax states since all the states that border Crazyfornia have lower tax burdens which explains why they have large retiree populations. So what are all of these lavish services you allude to? In the county area where I live we see a sheriffs patrol car once or twice a year, no street lights, practically nonexistent street maintenance and water and sewer break down regularly. Fully one half of our prop. tax bill (which has doubled in less than ten years) goes for sewer & water assessment districts and endless school bonds. Those are some gold plated services there Dougie. I’m sure I couldn’t find anything that luxurious elsewhere.

Like John Seiler keeps pointing out, the main thrust of this article is that we were lied to by the proponents of Prop. 30 about how the funds would be used. IF YOUR CAUSE IS RIGHTEOUS THEN WHY DO YOU “PROGRESSIVES” NEED TO LIE AND DECEIVE ALL THE TIME?

Oh Dougie, I ran across an interesting article at the Milwaukee Journal-Sentinel Online (hardly a right wing rag) that shows Crazyfornia as having higher taxes per capita and per income than all the neighboring states and nearly all of the states west of the Mississippi. It also shows Crazyfornia having higher per income and per capita government spending than most western & southern states. Needless to say, it shows Texas as having much lower taxes and state spending compared to our messed up little dystopia-by-the-sea. Though I wouldn’t want to live in Texas, there are lots of other lower tax states with much to offer.

So you ProgBots go right ahead and keep alienating tax payers and lavishing privileges and freebies on tax consumers. I’m sure that will work out just fine in the long run

If I have any “cause” at all, it is to point out the “lies and deceit” as I see them.

Although it wasn’t quoted in this article or blog (yet), one of those lies is that California (even before prop 30) “already has the highest taxes of any state”.

I have seen in various CWD blogs that “libtards” or “ProgBots” ( that’s a new one) or “RAGWUS” (inane, but he won’t give up trying), have a problem with math.

So, my “cause” is to point out that the highest sales tax “rate” does NOT mean the highest sales tax. The highest income tax “rate” does NOT mean the highest income tax. Simple math.

When I read a statement that “California is AMONG the highest taxed states”, I accept it and continue reading. When I read we are the HIGHEST, I feel the need to challenge. Jon Coupal recently wrote that we moved from fifth place to fourth in highest taxes per capita. That seems to agree with most other data I’ve seen.

Maybe you think “fourth highest” is a negligible difference from “highest taxed state”. Au contraire. Often the difference in tax burden between a group of states is less than a percentage point, and that difference may be offset by higher per capita earnings. And the difference in tax burdens in ones particular instance may vary greatly from the “average”.

Normal people sometimes read these doom and gloom blogs and can’t be blamed with coming to the false conclusion that “we” are the most persecuted taxpayers in the nation. Not true.

(Not the highest welfare costs, either, but that’s for another day.)

The grass isn’t always greener on the other side.

……………………

As far as the point of the article, voters were told, by Brown and others, that if prop 30 did not pass there would be FURTHER cuts to schools, as well as to programs in the general fund. What part of that is not true?

The interesting one here is the TOP ONE PERCENT of family income earners. In California, they pay 8.8% of their income in state and local taxes. FAR higher than the US average of 5.6% for THAT income group.

Poor guys. Although, notice, the TOP ONE PERCENT of California family income earners still pay less, as a percentage of income, than almost eighty percent of US taxpayers.

I made sure to read the main points of the initiative when it went into signature-circulation–it said that the new taxes would go into the general fund, to free up other funds earmarked for the schools and safety. Isn’t that what is happening?

Douglas at #31: Your link at the bottom, showing Calf. #11 in taxes, was for the 2011 tax year. That was before Prop. 30 and Prop. 39 were imposed. In 2013, the rank will be higher.

Also, the data you linked to was for “all taxes,” including on oil. So Alaska, North Dakota and Wyoming ranked high, because they have small populations but produce a lot of oil. They they usually are at the bottom for personal taxes paid; for example, Alaska and Wyoming have no state income tax.

And the chart you link to says at the top, “Note, this data includes state taxes only. Excluding local taxes can bias comparisons for some states.” So California’s high local tax rates were not included in the calculations.

I confess this one made me laff….right up to the point your finger locked up on the keyboard. So close Tedz…ever so close!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

At #30, Douglas wrote, “As far as the point of the article, voters were told, by Brown and others, that if prop 30 did not pass there would be FURTHER cuts to schools, as well as to programs in the general fund. What part of that is not true?”

Actually, we don’t know yet what will happen. Perhaps this time is different.

But when Republican Gov. Pete Wilson and the Democratic Legislature increased taxes by $7 billion in 1991, within two years general fund revenues actually declined by $2 billion, to $40 from $42 billion. The general fund revenues didn’t start increasing again until 1995, when the taxes expired. The reason: the tax increases lowered economic growth and the tax rate, chasing out businesses and jobs and taxpayers.

When I cited per capita taxes in the past, Soquel told me it was misleading because “the average person has one testicle and one ovary”. When I quoted taxes as a percent of income I was told that was not valid because when percapita income was higher, it was probably offset by higher cost of living.

Now I’m citing taxes from the wrong year?…..(weren’t Arnold’s taxes still in place in 2010 and 2111? And weren’t they higher than prop 30 taxes?)
……………..
Just for giggles and sheets, here’s one more. (2010, I couldn’t find any data for 2015):

If you live in Fresno instead of LA, your taxes may vary. If you have a family of four instead of three, please disregard this post. If you have one testicle and one ovary, like Soquel by the creek, this does not apply to you.

(sarcasm off)

These figures are meant to be a generalized comparison between states. You can literally have two families of three living next to each other in similar tract homes with WILDLY different tax burdens ( prop 13? Source of income? Purchasing habits?)
…………….
“In 2013, the rank will be higher.”

Really? Don”t bet on that.
……………
“The general fund revenues didn’t start increasing again until 1995, when the taxes expired. The reason: the tax increases lowered economic growth and the tax rate, chasing out businesses and jobs and taxpayers.”

Really? Haven’t we gone here before?
Does “Correlation does not imply causation” ring a bell?
Wasn’t the early 90s the time my house value dropped by 15%?

Why don’t we meet in the field with Ted? California has plenty of room for improvement (believe it or not, I don’t care much for paying taxes either!) But ease off on the doom and gloom, we are NOT number one.

The glass is at least half full.

(Moderation is not really my middle name, but it’s starting to grow on me)

Money is fungible, even the money collected in taxes as a result of Prop 30. That means the money is used to pay whatever lawful obligations the state might have, including pensions, salaries, adverse legal judgements, and school expenses for the children.

If Prop 30 had not passed, there would have inevitably been more and longer cuts to education, which would have had a negative impact on our schools and the children who attend them. So, there was no misrepresentation in the election at all. If Prop 30 had not passed, our school children would have had fewer school services.

BobA, the everyday RAGWUS feeder cares not where the tax dollars come from, thiers is a fantasy of sorts, produce nothing and recieve much, not too much unlike the Dire Straights song, money for nothing.

The entire RAGWUS system is nothing more than a means to an end, and a dishonest one at that!!

Douglas: Arnold’s taxes were passed in 2009 and expired in 2011. Remember how in 2011 Gov. Brown tried to get Republicans in the Legislature to put a tax extension on the ballot, and for once the GOP stood solid with taxpayers and refused? That was before the supermajorities for the Democrats.

When you have the nation’s largest and most diverse population, and then systematically defund public education to offset things like property tax and income tax cuts for the wealthiest among us, is it really a surprise that our schools have to struggle with education standards, particularly in the areas of math and science?

The big problem here is that CalPERS has been talking with cities for 18 months about the enormous increase in pension costs. Even though we are talking about CalSTRS here, the governor was privy to that conversation; however, he revealed, or lied, whichever you choose. He knew 18 months ago, before the election, that the money would have to go to bail out pensions. Sounds like a good reason to recall the Governor, before he has a chance to ravage what is left of California.

I asked you for your opinion, Not some government statistics. I’m an engineer by education and profession. I can read and interpret numbers and I can assure you that numbers are a snapshot in time and don’t always convey the facts as they are in real time. Bernie Madoff was a master of numbers manipulation and we know where happen to him.

Your visceral hatred of people with money would be more objective and constructive and if it was specifically directed at crony capitalism. That is the kind of wealth for which I think you and I both can agree on because it is inherently unfair and uncompetitive.

If Mom & Pop busted their humps for 40 years building their business and retired rich, do you hold their earned wealth against them?

This letter is to advise you of some important information that may affect your educational plans for 2013-14. Regrettably, due to reductions in funding from the state, which is impacting the number of students community colleges can serve this coming academic year,….

We apologize for this unfortunate situation as a result of diminished state funding. We look forward to seeing you in the future.